Budget 2020: structures and buildings allowance rate increased

In a Budget focused on supporting businesses through the current coronavirus crisis, the Chancellor announced a 1% increase in capital allowances under the structures and buildings allowance

This measure introduces a new rate of structures and buildings allowance for capital allowances up from 2% to 3% from April 2020 as well as some technical changes take immediate effect from 11 March 2020, and will cost an estimated £1bn over the term of this parliament.

In year one the tax relief will amount to £90m with the annual cost rising to £295m by 2024-25.

The tax break affects businesses incurring qualifying expenditure on non-residential structures and buildings newly constructed, or renovated, on or after 29 October 2018.

From 1 April 2020 for the purposes of corporation tax and 6 April 2020 for the purposes of income tax, businesses may claim an increased annual allowance of 3%.

The increased rate of relief is designed to support business investment in constructing new non-residential structures and buildings including necessary preparatory costs, and the improvement of existing ones.

From the operative date, all businesses that bring into qualifying use a non-residential structure or building, where all the contracts for construction works were entered into on or after 29 October 2018, will be able to claim the new rate of 3% per year.

Businesses whose chargeable period spans 1 April (corporation tax) or 6 April (income tax), may claim 2% per year for days in that period before the operative date and 3% for days thereafter.

There are also some transitional measures for businesses using the current scheme.

The government said that ‘further one-off costs may therefore arise from keeping such a record, where they continue to own the asset till expiry of 33 and one third years from the date the asset was first used.

‘Ongoing savings are expected to include fewer calculations as the relief will be calculated over 33 and one third years, instead of 50 years, which is expected to positively impact businesses.’

The capital allowance increase is designed to encourage investment in commercial construction projects.

Portia Pierrel, capital allowances lead at PwC, said:  ‘The increase in the rate of relief for SBA from 2% to 3% will be a welcome increase for many businesses who since its introduction have been left largely unconvinced of the overall benefit of claiming the relief versus the administration associated with its adoption.

‘It has long been a frustration of many businesses that a large proportion of capital expenditure did not qualify for tax relief since the abolition of its predecessor, the industrial buildings allowance. 

‘The introduction of SBA is intended to address unrelieved capital expenditure and encourage commercial investment. An increase in the rate of relief is a step in the right direction to make the relief more appealing.’

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